[Federal Register Volume 69, Number 77 (Wednesday, April 21, 2004)]
[Proposed Rules]
[Pages 21450-21454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-9058]


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DEPARTMENT OF TRANSPORTATION

Office of the Secretary

14 CFR Part 399

[Dockets Nos. OST-97-2881, OST-97-3014, OST-98-4775, and OST-99-5888]
RIN 2105-AD37


Statements of General Policy: Price Advertising

AGENCY: Office of the Secretary, Department of Transportation.

ACTION: Withdrawal of proposed amendments to policy statement.

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SUMMARY: The Department had proposed to amend its existing policy

[[Page 21451]]

statement on fare advertising, 14 CFR 399.84, which requires airlines 
and travel agents to disclose the full price for an airline ticket 
(including all airline surcharges and most government fees), by 
applying the policy statement to computer reservations systems 
(``CRSs'' or ``systems'') and requiring travel agents to separately 
state the amount of any service fees charged by the travel agency. 
After considering the comments, the Department has decided to withdraw 
the proposals, because the record does not persuasively show that they 
are necessary or would be beneficial. The existing policy statement 
will remain in effect without change.

FOR FURTHER INFORMATION CONTACT: Thomas Ray, Office of the General 
Counsel, 400 Seventh St. SW., Washington, DC 20590, (202) 366-4731.

SUPPLEMENTARY INFORMATION:

Electronic Access

    You can view and download this document by going to the Web site of 
the Department's Docket Management System (http://dms.dot.gov/). On 
that page, click on ``simple search.'' On the next page, type in the 
last four digits of the docket number shown on the first page of this 
document, 2881. Then click on ``search.'' An electronic copy of this 
document also may be downloaded from http://regulations.gov and from 
the Government Printing Office's Electronic Bulletin Board Service at 
(202) 512-1661. Internet users may reach the Office of the Federal 
Register's home page at: http://www.archives.gov/federal_register/index.html and the Government Printing Office's database at: http://www.gpoaccess.gov/fr/index.html.

A. Summary

    We began this proceeding to reexamine whether the rules on computer 
reservations systems (``CRSs'' or ``systems'') adopted by us in 1992, 
14 CFR Part 255, remained necessary and should be readopted. We 
ultimately concluded, after reviewing the comments and the on-going 
changes in the airline distribution and CRS businesses reflected in 
those comments, that we should allow most of the rules to sunset on 
January 31, 2004, and should terminate the remaining rules on July 31, 
2004. 69 FR 976 (January 7, 2004). As a result, after July 31, 2004, we 
will have no regulations prescribing how systems must display airline 
services.
    While the proceeding focused on the CRS rulemaking issues, we also 
included two proposals that would modify our existing policy statement 
on price advertising, 14 CFR 399.84. 67 FR 69366, 69417-69418 (November 
15, 2002). That policy statement has stated that we will consider an 
advertisement by an airline or travel agency to be an unfair or 
deceptive practice if it states a price that is not the complete price 
that must be paid by the consumer for the air transportation. We 
adopted the policy statement under 49 U.S.C. 41712, formerly section 
411 of the Federal Aviation Act, which authorizes us to define and 
prohibit unfair and deceptive practices in the marketing of airline 
transportation (we will refer to the statute herein under its 
traditional name, section 411).
    One of our two proposed amendments to this policy statement would 
have made it clear that each system has an obligation to ensure that 
its displays of fare information follow the standards set by Sec.  
399.84. The second proposal would have clarified the policy statement 
by expressly allowing travel agents to state service fees separately 
from the price of the air transportation, if they complied with 
conditions ensuring that their customers (i) would understand their 
obligation to pay a fee for the travel agency service and (ii) would 
know the total price for the transportation, including any travel 
agency service fee. We further proposed to require that advertised or 
quoted fares always include travel agency service fees if the fees 
exceed either $20 or ten percent of the fare or are ad valorem in 
nature.
    Our final CRS rule stated that we would issue our final decision on 
the policy statement proposals in a separate document. 69 FR 978. This 
is our final decision on the proposals. We have decided to withdraw the 
proposals without adopting them, because the record in this proceeding 
does not adequately show that either proposal would provide significant 
benefits. The lack of amendments to the policy statement will not 
prevent us from taking enforcement action against systems and travel 
agencies if they display fares or service fee information in a manner 
that constitutes an unfair and deceptive practice in violation of 
section 411. We have determined that each system, whether or not owned 
or controlled by an airline, is a ticket agent and therefore subject to 
our jurisdiction under section 411 (Sabre, however, is seeking judicial 
review of our determination, Sabre, Inc. v. Department of 
Transportation, DC Cir. No. 04-1073 (filed March 1, 2004)). 69 FR 995-
998.

B. Our Proposals and the Comments

    Section 411 prohibits unfair or deceptive practices in the sale of 
air transportation. To provide guidance on the meaning of this 
statutory prohibition, our policy statement on fare advertisements, 14 
CFR 399.84, states that we will consider an advertisement by an airline 
or travel agency to be an unfair or deceptive practice if it states a 
price that is not the complete price that must be paid by the traveler 
for the air transportation. Section 399.84 requires each airline and 
travel agency to include in any advertised or quoted fare any charge 
imposed by the airline, such as a fuel surcharge, and most governmental 
charges. As a matter of enforcement discretion, we have created limited 
exceptions to this policy. The stated fare amount need not include 
certain governmental taxes and fees collected by airlines and travel 
agencies, such as passenger facilities charges and departure taxes, as 
long as the charges are not ad valorem in nature and are collected on a 
per-passenger basis, and as long as their existence and amount are 
clearly stated in the advertisement so that the consumer can determine 
the full amount to be paid for the transportation. See, e.g., Notice: 
Prohibition on Deceptive Practices in the Marketing of Airfares to the 
Public Using the Internet (February 18, 2001), at http://airconsumer.ost.dot.gov/rules.htm.
    As noted, our notice of proposed rulemaking proposed two amendments 
to this policy statement. We gave interested persons the opportunity to 
file comments and reply comments and to present their views at a public 
hearing. 69 FR 984.
    The first proposed revision would have expressly applied the policy 
statement to the systems as well as to airlines and travel agencies. In 
proposing this amendment, we reasoned that a fare display that does not 
include items such as fuel surcharges and government fees could mislead 
consumers, since the display would suggest that some airlines are 
offering lower fares than other airlines when in fact the opposite may 
be true. Cf. Order 2002-3-12 (March 15, 2002) at 7. Our current policy 
statement on fare advertisements expressly covers airlines and each 
airline's agents and thus clearly applies to travel agents. By its 
terms, however, it may not apply to the systems' display of airline 
fares. Cf. 69 FR at 996. We therefore proposed to require the systems 
to include all charges in their displays of airline fares.
    Our second proposal would have amended the policy statement by 
adding standards for the travel agencies' disclosure of their service 
fees to their customers. The policy statement bars airlines and travel 
agencies from

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separately listing surcharges which would confuse consumers and keep 
them from making accurate fare comparisons. The Department's 
Enforcement Office has traditionally interpreted the policy statement 
as barring the separate listing of a travel agency's service fee and 
instead as requiring the agency to include the fee in the fare amount 
quoted the customer. See Order 2001-12-7 at 3. However, we granted a 
request by Orbitz, the on-line travel agency created by five of the 
major airlines, for a conditional exemption from the policy statement 
so that its initial display of available fares need not include Orbitz' 
planned $5 service fee. Order 2001-12-7 (December 7, 2001), affirmed on 
reconsideration, Order 2002-3-12 (March 15, 2002). The order allowed 
Orbitz to omit the fee from its first quotation of fares but required 
Orbitz to include the amount of the fee in the price whenever it 
presents an itinerary that can be purchased. The order imposed several 
other conditions, including requirements that Orbitz place a notice 
just above its display of possible itineraries that advises consumers 
that it charges a fee and that Orbitz provide a link to its fee 
schedule. We noted that we would further consider what disclosures 
should be required for travel agency fees in a rulemaking. Order 2001-
12-7 at 5. The Enforcement Office thereafter stated that it would apply 
the Orbitz exemption order's standards to all Internet agencies. Notice 
of the Office of Aviation Enforcement and Proceedings (December 19, 
2001), cited at Order 2002-3-12 at 1.
    In proposing to modify our policy statement on the disclosure of 
travel agency service fees, we thought that consumers could benefit by 
requiring separate listings of the amount of service fees being charged 
by all sellers of air transportation, as long as standards were in 
place to prevent deception. The separate disclosure of the amount of 
any service fee could enable consumers to make better informed 
decisions on which booking channel to use, since consumers then could 
see whether they could save money by buying the ticket directly from 
the airline or from another agency that charges a lower service fee or 
no service fee. 67 FR 69417-69418.
    Our proposal would also have required the travel agency to include 
any service fees in the total price displayed or quoted before the 
customer decided whether to purchase the ticket. Furthermore, we 
proposed to block travel agency service fees from being stated 
separately (i) if they were ad valorem in nature, since simply 
identifying percentage add-ons make price comparisons more difficult, 
or (ii) if they exceeded $20 or ten percent of the ticket price, since 
we wished to ensure that service fees were not used merely to make the 
advertised fare seem lower. 67 FR 69418. We were not proposing, 
however, to bar travel agencies from charging ad valorem fees or fees 
that exceeded $20 or more than ten percent of the ticket price. 68 FR 
12622 (March 17, 2003). We also asked the parties to comment on an 
alternative proposal: a policy allowing travel agencies to choose 
between listing their fees separately and including the fees in the 
price quoted for air transportation. 67 FR 69418.
    Southwest, the American Society of Travel Agents (``ASTA''), 
Expedia, Travelocity, and the Mercatus Center opposed the proposal to 
require travel agencies to unbundle the amount of the air 
transportation cost from the amount of any travel agency service fee. 
Galileo, Orbitz, Alaska, America West, and American Express supported 
the proposal in principle, but most of them contended that it required 
substantial modification. AAA argued that travel agencies should be 
able to choose whether to bundle or unbundle their service fees and 
that they should be required to disclose any such fees.
    Amadeus, Worldspan, ASTA, and Travelocity opposed the proposal to 
apply the policy statement to the systems, while America West supported 
it and Galileo stated that a revised proposal would be acceptable. Some 
commenters, like Sabre, did not specifically comment on this proposed 
change in the policy statement but argued that we have no authority 
under section 411 to regulate systems that are not owned or controlled 
by one or more airlines, in which event the policy statement could not 
cover such non-airline systems.
    Finally, section 542 of the Consolidated Appropriations Act, 2004, 
Public Law 108-199, states, ``None of the funds [from this Act] may be 
used to adopt rules or regulations concerning travel agent service fees 
unless the Department of Transportation publishes in the Federal 
Register revisions to the proposed rule and provides a period for 
additional public comment on such proposed rule for a period not less 
than 60 days.''

C. Final Decision

    We continue to seek to prevent airlines and travel agencies from 
providing consumers with misleading or inaccurate information. To 
prevent such practices, we can use both our enforcement authority and 
our rulemaking authority. We may bring enforcement cases against 
airlines and travel agencies for engaging in conduct that violates 
section 411 even if there is no regulation or policy statement that 
states that the specific conduct at issue is unlawful as an unfair or 
deceptive practice.
    As we stated in our final CRS rule, we should adopt rules 
regulating industry practices under section 411 only if those rules are 
reasonably necessary to prevent anti-competitive or deceptive practices 
that are likely to occur, and would cause significant consumer harm if 
they did occur, and only if market forces are unlikely to remedy the 
problem. 69 FR 977. Judged against that standard, the record in this 
proceeding does not justify the adoption of either proposed amendment 
to the policy statement.
    With respect to the proposal on the disclosure of travel agency 
service fees, the record does not provide a factual basis for mandating 
a specific format for the disclosure of travel agency service fees. 
While consumers could benefit from a separate disclosure of any such 
fee, the record does not show that consumers have been harmed when 
travel agencies instead display a total price including such fees. See, 
e.g., ASTA Comments at 36. Expedia, for example, represents that no 
consumer has ever complained that Expedia's practice of showing a total 
price for a trip without a separate disclosure of a service fee is 
misleading or hides necessary information. Expedia Comments at 25. 
Expedia further argues that its display of only a total price is not 
deceptive. Expedia Supp. Comments at 2. Given our decision in the CRS 
rulemaking that airline distribution should not be subject to 
industrywide regulations unless necessary, we have concluded that the 
comments do not show a basis for mandating one form of fee disclosure 
rather than another.
    In addition, adopting the proposal seems unwise at this time due to 
potential difficulties discussed in the comments. First, the First 
Amendment, which protects commercial speech, would allow us to dictate 
how service fees must be disclosed only if we have a record 
demonstrating a substantial need for such a regulation. See, e.g., 
Edenfield v. Fane, 507 U.S. 761, 770-771 (1993) (the burden of 
justifying a restriction on non-deceptive commercial speech ``is not 
satisfied by mere speculation or conjecture; rather, a governmental 
body seeking to sustain a restriction on commercial speech must 
demonstrate that the harms it recites are real and that its restriction 
will in fact alleviate them to a material degree'').

[[Page 21453]]

Second, travel agencies charge a variety of fees, and some charge 
different fees for bookings on different airlines. See, e.g., American 
Express Comments; Expedia Comments at 25. Our notice did not address 
how the proposed disclosure requirements would apply to these different 
practices. We note as well that Orbitz, which originally urged us to 
require the separate disclosure of service fees, is apparently not 
using the exemption authority granted by us and instead is displaying a 
total price for air transportation that includes the service fee. Tr. 
at 227. Finally, many of the commenters viewed the proposed provision 
requiring the bundling of service fees when they exceeded $20 or ten 
percent of the ticket price as unreasonable and counterproductive. See, 
e.g., National Travel Comments.
    Our decision to withdraw the rule proposals and end this rulemaking 
without changing the policy statement will not keep us from taking 
appropriate enforcement action or other action to prevent travel 
agencies and other firms selling airline tickets from engaging in price 
advertising that misleads the public. Section 411 authorizes us to 
prevent unfair and deceptive practices in the marketing of air 
transportation, and the First Amendment does not protect commercial 
speech that is deceptive or misleading. 69 FR 1003-1004.
    At this time, we will also maintain the exemption granted by Order 
2001-12-7. Giving travel agencies exemption authority to initially 
state the amount of any service fee separately from the ticket price, 
subject to adequate conditions designed to ensure that consumers will 
also know the total price including the fees, has not caused 
discernible harm. Several commenters contend that we should allow the 
market and consumer preferences to decide which method of disclosure is 
best. See, e.g., Expedia Reply Comments at 10; ASTA Reply Comments at 
23. Doing so would be consistent with our decisions that we should not 
adopt rules generally regulating the displays offered by on-line travel 
agencies. 69 FR 977, 1003, 1020.
    Unlike the disclosure of travel agency service fees, the failure of 
an airline or travel agency to include fuel surcharges and similar 
airline charges in the initial display of a ticket price is likely to 
mislead consumers. See, e.g., ASTA Comments at 36-37. A failure to 
include such charges in the price would violate our existing policy 
statement.
    Because we are adopting no rule on the disclosure of travel agency 
service fees, the Congressional directive requiring us to issue an 
additional notice of proposed rulemaking is inapplicable. The statute 
requires us to use further procedures only if we were adopting a rule 
or regulation on service fees.
    We have also decided not to adopt the other proposed amendment, 
which would make the policy statement expressly cover the systems as 
well as airlines and travel agencies. We determined in this rulemaking 
to deregulate the CRS industry by terminating the rules generally 
regulating CRS practices. Given that decision, at this time we prefer 
not to make the policy statement applicable to the systems when they 
have not been subject to it before. The systems, moreover, are situated 
somewhat differently than the firms now covered by the policy 
statement, airlines and travel agencies. The policy statement by its 
terms refers to ``advertising'' and ``solicitation,'' terms which more 
accurately describe the conduct of airlines and travel agents than the 
systems' conduct, despite the systems' important role in airline 
distribution. See, e.g., Amadeus Comments at 106; ASTA Reply Comments 
at 22-23. In addition, although the systems necessarily rely on the 
information provided by the airlines, our deregulation of the CRS 
business will eliminate the rule expressly requiring airlines to 
provide complete and accurate information to the systems, 14 CFR 
255.4(f) (2003 ed.). Finally, almost none of the commenters supported 
the proposal, and the systems' major users--the travel agencies--are 
not urging us to revise the policy statement.
    However, as noted above, the systems are subject to our 
jurisdiction under section 411, and we will take action as appropriate 
if a system's displays of fare information (or other information) 
involve unfair and deceptive practices.

Regulatory Process Matters

Regulatory Assessment and Unfunded Mandates Reform Act Assessment

1. Unfunded Mandates Reform Act Assessment
    The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1531-1538, 
requires Federal agencies to prepare a written assessment of the costs, 
benefits, and other effects of proposed or final rules that include a 
Federal mandate likely to result in the expenditures by State, local, 
or tribal governments, in the aggregate, or by the private sector, of 
more than $100 million annually.
    The decision to withdraw the rule proposals will not result in 
expenditures by State, local, or tribal governments because we are not 
adopting any new regulation. The Regulatory Assessment below discusses 
the costs and benefits for the withdrawal.
2. The Department's Regulatory Assessment
    Executive Order 12866, Regulatory Planning and Review (58 FR 51735, 
October 4, 1993), defines a significant regulatory action as one that 
is likely to result in a rule that may have an annual effect on the 
economy of $100 million or more or adversely affect, in a material way, 
the economy, a sector of the economy, productivity, competition, jobs, 
the environment, public health or safety, or State, local, or tribal 
governments or communities. Regulatory actions are also considered 
significant if they are likely to create a serious inconsistency or 
interfere with the actions taken or planned by another agency or if 
they materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of the 
recipients of such programs.
    The Department's Regulatory Policies and Procedures (44 FR 11034, 
February 26, 1979) outline similar definitions and requirements with 
the goal of simplifying and improving the quality of the Department's 
regulatory process. They state that a rule will be significant if it is 
likely to generate much public interest.
    The Department has determined that the withdrawal of the proposals 
is not an economically significant regulatory action under the 
Executive Order. The Department is not making any regulatory change and 
so is taking no action that would likely have an annual impact on the 
economy of $100 million or more.
    The Department's withdrawal is not significant under the 
Department's Regulatory Policies and Procedures because it will not 
change the existing regulations governing the disclosure of travel 
agency service fees. The Department's regulatory assessment for this 
withdrawal, which incorporates the earlier discussion in this document, 
is set forth below. This withdrawal has not been reviewed by the Office 
of Management and Budget under the Executive Order.
    The notice of proposed rulemaking contained a preliminary 
regulatory impact analysis of the proposed rules. That analysis focused 
on the proposed changes in the CRS rules. We requested interested 
persons to provide detailed information on the potential consequences 
of the proposed rules. 67 FR 69419.

[[Page 21454]]

    We are not adopting any rule modifying the policy statement's 
standards, because we cannot conclude from the record in this 
proceeding that the benefits of the proposed modifications would exceed 
their costs, as discussed above. The record does not demonstrate that 
the disclosure requirements for travel agency service fees established 
by the existing policy statement and the exemption granted Orbitz are 
causing any significant consumer harm. Some travel agencies, moreover, 
contend that the proposed change would unreasonably interfere with 
their business practices while not providing any significant consumer 
benefit. Therefore, we are not imposing any additional costs.

Regulatory Flexibility Statement

    The Regulatory Flexibility Act of 1980, 5 U.S.C. 601 et seq., was 
enacted by Congress to ensure that small entities are not unnecessarily 
and disproportionately burdened by government regulations. The act 
requires agencies to publish a final regulatory flexibility analysis 
for regulations that may have a significant economic impact on a 
substantial number of small entities.
    Our notice of proposed rulemaking, which assumed that the relevant 
small entities included smaller U.S. airlines and travel agencies, 
included an initial regulatory flexibility analysis. That notice, which 
focused on the proposed amendments to the CRS rules, also set forth the 
reasons for our rule proposals and their objectives and legal basis. 
The notice's analysis relied in part on the factual, policy, and legal 
analysis set forth in the remainder of the notice, as allowed by 5 
U.S.C. 605(a). We invited comments on our initial regulatory 
flexibility analysis. 67 FR 69424.
    The Regulatory Flexibility Act requires us to publish a final 
regulatory flexibility analysis that considers such matters as the 
impact of a final rule on small entities if the rule will have ``a 
significant economic impact on a substantial number of small 
entities.'' 5 U.S.C. 605(b). Our proposed changes to the policy 
statement would have affected the systems and travel agencies. None of 
the systems is a small entity, but most travel agencies are small 
entities. 69 FR 1030-1031. Since we are not adopting any new rules 
regulating travel agency operations, I certify that our withdrawal will 
not have a significant economic impact on a substantial number of small 
entities. No final regulatory flexibility analysis is therefore 
required for this action.
Assistance for Small Entities
    Under section 213(a) of the Small Business Regulatory Enforcement 
Fairness Act of 1996, Public Law 104-121, we want to assist small 
entities in understanding our decision so that they can better evaluate 
its effects on them and take it into account in operating their 
businesses. If the decision affects your small business, organization, 
or governmental jurisdiction and you have questions concerning its 
provisions or requirements, please consult Thomas Ray at (202) 366-
4731.

Paperwork Reduction Act

    The withdrawal of the rule proposals will create no collection-of-
information requirements subject to the Paperwork Reduction Act, Public 
Law 96-511, 44 U.S.C. Chapter 35. See 57 FR at 43834.

Federalism Implications

    The Department's withdrawal will have no substantial direct effects 
on the States, on the relationship between the national government and 
the States, or on the distribution of power and responsibilities among 
the various levels of government. Therefore, in accordance with 
Executive Order 13132, dated August 4, 1999, we have determined that 
this decision does not present sufficient federalism implications to 
warrant consultations with State and local governments.

Taking of Private Property

    Our withdrawal will not effect a taking or private property or 
otherwise have taking implications under Executive Order 12630, 
Government Actions and Interference with Constitutionally Protected 
Property Rights.

Civil Justice Reform

    Our withdrawal meets applicable standards in sections 3(a) and 
3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize 
litigation, eliminate ambiguity, and reduce burden.

Protection of Children

    We have analyzed our withdrawal under Executive Order 13045, 
Protection of Children from Environmental Heath Risks and Safety Risks. 
The withdrawal does not concern an environmental risk to health or risk 
to safety that may disproportionately affect children.

Consultation and Coordination With Tribal Governments

    This withdrawal will not have tribal implications, will not impose 
substantial direct compliance costs on Indian tribal governments, and 
will not preempt tribal law. Therefore, it is exempt from the 
consultation requirements of Executive Order 13175. No tribal 
implications were identified.

Energy Effects

    We have analyzed our withdrawal under Executive Order 13211, 
Actions Concerning Regulations That Significantly Affect Energy Supply, 
Distribution, or Use. We have determined that it is not classified as a 
``significant energy action'' under that order because it would not 
have a significant adverse effect on the supply, distribution, or use 
of energy.

Environment

    Our withdrawal will have no significant impact on the environment. 
Therefore, an Environmental Impact Statement is not required under the 
National Environmental Policy Act of 1969.

    Issued in Washington, DC on April 14, 2004, under authority 
delegated by 49 CFR 1.56a(h)2.
Michael W. Reynolds,
Deputy Assistant Secretary for Aviation and International Affairs.
[FR Doc. 04-9058 Filed 4-20-04; 8:45 am]
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